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Money flows are unequivocal. Europe-themed stock mutual and exchange-traded funds raked in $5.8 billion in the week ended Feb. 18, according to Bank of America Merrill Lynch. Over six weeks, some $21 billion has rushed in to Europe funds.

Optimism about the Continent’s market prospects has been jumping in recent weeks after the European Central Bank launched its quantitative easing measures and in spite of ongoing negotiations between Greece and its creditors over bailout terms for Athens. Even value-focused Nobel Prize winner Robert Shiller is buying.

High-yield bonds funds have also received investors’ warm embrace, taking in money for four consecutive weeks. The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) is up 1.8% so far this year.

February has seen a sharp reversal of the safety-oriented trades that dominated January, when the SPDR Gold Shares (GLD) and the iShares 20+ Year Treasury Bond ETF (TLT) were big winners. Instead, those funds, along with the bond-like SPDR Select Sector Utility ETF (XLU) all have rolled over.

Hartnett summarizes the trend pithily: “Out with the safe, in with the risk.”

Meredith Whitney joined the ranks of market watchers calling for higher market volatility.

Whitney, a former sell-side analyst covering financials and best known for her prescient forecast that Citigroup was under-capitalized and would be forced to cut its dividend before the financial crisis, last year started hedge fund Kenbelle Capital.

Now, Whitney is calling for “higher and higher volatility.” She said stocks and bonds look vulnerable “liquidity eddies” or “vortexes”akin to what markets experienced in October, when the S&P 500 fell nearly 7% in a matter of weeks before recouping those losses in mere days. At the same time, Treasury yields dropped like a stone. She expressed her views Wednesday at the Inside ETFs conference in Hollywood, Fla.

“The market went theough massive gyrations,” Whitney said. “The risk of that happening again, and again and again in the coming years is higher.”

Why? Whitney said that, in the nearly two decades leading up to the 2008 financial crisis, investors soaked up waves of mortgage-backed securities: bundles of loans made to consumers to fund home their home purchases. These bonds looked safe and offered a relatively high yields. Of course, this market collapsed and ripples of the downfall put the global financial system on its knees. MBS issuance shriveled but investors, still thirsty for yield, pumped money other places.

“Money has crowded into other asset classes that can’ t handle the scale of inflows,” Whitney said.

In particular, she singled out the junk-bond market as one that seems to be highly vulnerable rising and falling tides of massive flows.

“One issue that keeps me up at night is lack of transparency, lack of liquidity … the debt market is not priced for it.”

Whitney also said the the U.S. economy is undergoing a transformation away from dependence on the financial industry. Lower energy costs and favorable business conditions in the U.S. relative to other developed markets mean industrial companies, both foreign and domestic, are likely to build new plants in the U.S. To facilitate this growth, non-residential construction and materials companies are likely to thrive from infrastructural upgrades to roads and airports, she said. This domino effect could boost companies such as Martin Marietta Materials (MLM).

“The U.S. has never looked better, not because we’re the cleanest dirty shirt but because we have real, strong economic growth … and a history of reinventing our economy.”

Jeffrey Gundlach told attendees at the Inside ETFs conference on Tuesday that he added to his position in the yellow metal in recent weeks amid a “cyclone of major events” unfurling across the globe. Gundlach also said that Treasury bond yields could fall farther in 2015 and that oil prices are likely to remain stubbornly low for the rest of this year.

“Gold remains a safe haven in times of turmoil,” Gundlach said. “People have given up because [it was] boring and painful.”

He added that gold price gains typically are reasonably good at predicting market volatility and quipped gold’s yield (zero) is higher than that of Swiss bonds. Payouts on Swiss government bills recently turned negative.

Gundlach said that the Federal Reserve is likely to raise interest rates this year, but also that uncertainty about the future of the European monetary union will drive demand and suppress yields. That’s a reiteration of what Gundlach told Barron’s in an interview last month. Gundlach was among the only market forecasters to predict that yields would fall in 2014. Still, he cautioned against flip-flopping this late into the bond price move:

“Buying bonds now, when you hated them last year, can only be called performance chasing.”

Fallout from tumbling crude oil prices likely hasn’t manifested everywhere in the U.S. economy yet, Gundlach said, keeping him leery about junk debt in spite of recent price declines. He warned against making the “rookie mistake” of attempting to pick high-yield credits that can weather the storm. It’s a losing battle, he said.

“Junk bonds are no longer rich, just a little bit cheap on the way to really cheap.”

Instead, Gundlach pointed to bank loans, saying they are “probably a safe-haven play for high-yield investment” since they aren’t directly exposed to the oil patch.

Last year, State Street (STT) filed plans with regulators to launch the SPDR DoubleLine Total Return Tactical ETF, an actively managed exchange-traded fund co-managed by Gundlach. It could launch as soon as this year.

Today is the last trading day of December—and the year—a month that has seen oil prices drop to their lowest point in half a decade on concerns about global supply that is also taking its toll on individual oil-related companies.

Yet some ETF investors seem to think that now is the time to buy bargains in the sector.

That’s according to Bloomberg’s Jim Polson, who notes that more than $3.1 billion has poured into ETFs that own some of the biggest oil names, like Exxon Mobil (XOM) and Schlumberger (SLB)—but they likely have a long-term focus:

“There definitely seems to be evidence of investors seeking to bottom-fish this market and pre-position for 2015,” David Mazza, head of ETF research at State Street Corp., said in a phone interview. “Some investors we’ve spoken with don’t believe the negative picture on energy that’s become consensus.”…

“Longer-term investors, two to three years from now, will look back on this and say, ‘God, that was a good buying opportunity,’” said Fadel Gheit, a New York-based energy analyst for Oppenheimer & Co. For short-term investors, “it’s not going to be very pretty for the next few months.”

Nonetheless, despite this optimism, most major oil names, including Exxon, Chevron (CVX), BP (BP), Schlumberger and Halliburton (HAL) closed lower on Tuesday—as did the Energy Select Sector SPDR (XLE), down 5.2% in the past month and 7.1% in the past year—despite small gains in crude oil prices.

That said, XLE has been one of the big winners from December’s influx of money, attracting more than half of the inflows this month. Moreover, as Polson notes, that’s the most of any industry-based ETF.

On a related note, investors have yanked money from junk bond funds in response to low oil prices.

Falling crude has put serious strain on the high-yield bond market, raising concerns that losses could spill more broadly into stocks.

But Jack Ablin, chief investment officer at BMO Private Bank, doesn’t see panic in the market when he studies high-yield bond closed-end funds.

CEFs have a fixed number of shares, so every seller must find a buyer. That’s different from open-ended funds, which expand and contract based on supply and demand. The median discount on a the largest high-yield CEFs has slipped to 11%.

Ablin summarizes the concerns percolating in the market this way:

“Investors worry that a 45% percent decline in oil prices could ripple through the bond market since about $1 of every $6 invested in high yield bonds is in the energy sector.”

“Weaker credit conditions are enveloping a wider swath of the corporate bond market. Every sector except media has seen its credit spread widen more than 10 percent above its 200-day moving average. Spread widening has historically been consistent with investor risk aversion and potentially troubling stock market activity.”

Ablin concludes, after looking at the discounts in a subset of junk-bond CEFs, that concern in the market isn’t yet extreme:

“We like gauging investor sentiment via closed-end funds.

The largest 10 closed-end high yield funds are currently trading at an 11% median discount to their net asset values, reflecting investor concern. At the height of the financial crisis, high yield closed-end funds traded at a more than 30% discount to NAV.

While tensions are running high, it does not appear that investors are running for the door.”

What Ablin doesn’t say in Tuesday’s brief note (but what the chart he supplied shows) is that discounts on junk-bond CEFs are at the widest since 2009, well beyond what the market experienced during 2013′s “taper tantrum” or in the choppy markets that followed S&P’s downgrade of the U.S. debt rating in 2011.

Put another way, now is the best time in years to go shopping in the discount aisle for high-yield CEFs, unless this is to be read as a more ominous market signal.

Falling crude prices have had an outsize impact on below-investment-grade credit indexes. Barron’sMichael Aneiro has been all over this subject, noting earlier this month that energy accounted for nearly one-fifth of the index earlier this month (now it’s closer to 15%).

Oil and gas companies borrowed heavily to fund operations, but their ability to borrow more is contingent on the value of their reserves. Falling oil prices diminishes that value, making it more costly to borrow just when the market is less profitable. It’s a real pickle, and one that makes holding existing energy bonds a risky proposition. Aneiro notes today that the average yield on junk bonds in the energy sector has risen above 10% for the first time in over two years, as measured by the Bank of America Merrill Lynch high-yield index.

How have active managers fared? Reasonably well, at least by one metric. The average high-yield bond mutual fund had returned a negative 0.9% through Monday, according to Morningstar. That’s mildly better than a negative 1.25% return (based on price) for HYG, and a negative 1.97% for JNK. A handful of high-yield mutual funds have navigated the recent tumult with returns over over 3% for the year: Fidelity Capital & Income (FAGIX), Westcore Flexible Income Institutional (WILTX), Frost Credit Institutional (FCFIX) and the Loomis Sayles High Income Opportunities Fund (LSIOX).

One notable laggard is an actively managed ETF. The $449 million AdvisorShares Peritus High Yield ETF (HYLD) has a total return of negative 18% this year, according to Morningstar. HYLD, launched in 2010, ballooned in size to over $1 billion in May, but has since shed more than half of its assets in little over six months. Its active approach both allows for a market-beating 8.5% yield and mutual fund-like 1.18% annual fee. HYLD rose 0.9% on Tuesday.

The ETF gathered assets strongly after beating the high-yield benchmark in 2012 and 2013. Its managers touted the flexibility to delve into corners of credit where index funds weren’t otherwise able to look for value. Peritus hasn’t been shy about taking shots at passive ETFs’ ability to manage risks.

But slumping energy credits have weighed particularly heavily on HYLD given its highly concentrated holdings (fewer than 100 compared with closer to 1,000 for HYG and JNK). Investors should be buying high conviction when they pay up for active management, but that’s been an albatross this year for HYLD.

Chair of the Securities and Exchange Commission Mary Jo White testifies during a hearing before Senate Banking, Housing and Urban Affairs Committee in September.

The Securities and Exchange Commission‘s top regulator outlined a framework for rules meant to address systemic risks in the asset-management industry on Thursday, the clearest picture of the agency’s plans.

The Wall Street Journal’sAndrew Ackermanreports that SEC ChairwomanMary Jo White suggested the potential for rules to curb asset managers’ use of derivatives, require greater transparency about holdings and impose “stress tests” to probe for liquidity in times of stress. White made her comments at a conference in New York.

Ackerman reports that new rules could affect alternative mutual funds, a fast-growing corner of the market employing hedge-fund like strategies, and leveraged exchange-traded funds, which are built to deliver greater-than-market returns, in addition to large asset-management firms.

Here’s White, via Ackerman:

“This is the right set of initiatives for this stage of the development of the modern asset-management industry,” Ms. White said, speaking at a conference in Manhattan sponsored by the New York Times. She said the steps would address the “increasingly complex portfolio composition and operations of today’s asset-management industry.”

“Federal banking regulators and the International Monetary Fund have questioned whether the SEC’s regulation of mutual funds and asset managers is sufficient. They say funds with holdings in less liquid assets, such as bank loans or junk bonds, might have to sell investments at a loss to raise cash to meet redemption requests.”

“Mutual funds have come under particular scrutiny because they are open to retail investors and required to return funds within seven days to those who redeem shares. Funds forced to sell assets quickly could push down prices, creating spillover effects that hurt other investors, White said.”

Investors have marched billions of dollars into short-duration bond funds in anticipation of the interest-rate spike that, so far, hasn’t materialized.

Those short-duration funds that can boost their payouts are clearly most attractive. But Morningstar’s Director of Personal Finance, Christine Benz, warns that some large and popular funds are heavy in non-investment grade securities, which could be a worry if the market turns.

Given that many investors use short-term bond funds to defray near-term income needs, some of these funds could be taking more risk than their shareholders bargained for.

Given the duration of the current rally in lower-quality bonds, it’s a good time to pre-emptively check up on your holdings’ credit-quality exposures. And if a fund has a substantially higher yield than its peers, be sure you understand what it’s doing to generate it.

Ms. Benz points out that three-year Treasury yields are under 1%, while the average expense ratio for short-duration funds is around 0.80%. That’s a narrow window.
One fund that has managed to thread the needle between low expenses and yield is the Vanguard Short-Term Bond Index (VBISX), she points out.

Others, though, appear to be taking on more credit risk to compensate for the lower payouts in short duration. Ms. Benz singles out the BlackRock Low Duration (BFMSX) for having an overweight, 19%, in non-investment-grade bonds, far higher than peers.

Another is the Lord Abbett Short Duration Income (LALDX), which has been a magnet for inflows in recent years. The fund’s yield of nearly 4% is eye-popping in the short-duration universe.

Morningstar is cautious that the fund is relatively heavy in commercial mortgage-backed securities and low-quality bonds to power that yield.

About Focus on Funds

As exchange-traded funds and other investing vehicles have ballooned in number, the task of figuring out what works well and what doesn’t has only gotten harder. Barrons.com’s Focus on Funds looks under the hood of ETFs, mutual funds and hedge funds for overlooked values, actionable ideas and the latest pitfalls for fund investors.

Chris Dieterich has covered the U.S. stock market for The Wall Street Journal and Dow Jones Newswires. He is a graduate of Regis University and the Missouri School of Journalism.